Correlation Between RBC Select and TD Canadian

Can any of the company-specific risk be diversified away by investing in both RBC Select and TD Canadian at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining RBC Select and TD Canadian into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between RBC Select Balanced and TD Canadian Index, you can compare the effects of market volatilities on RBC Select and TD Canadian and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in RBC Select with a short position of TD Canadian. Check out your portfolio center. Please also check ongoing floating volatility patterns of RBC Select and TD Canadian.

Diversification Opportunities for RBC Select and TD Canadian

0.68

Correlation Coefficient

RBC Select  TD Canadian

Poor diversification

The 3 months correlation between RBC and TDB900 is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding RBC Select Balanced and TD Canadian Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Canadian Index and RBC Select is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on RBC Select Balanced are associated (or correlated) with TD Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Canadian Index has no effect on the direction of RBC Select i.e., RBC Select and TD Canadian go up and down completely randomly.

Pair Corralation between RBC Select and TD Canadian

Assuming the 90 days trading horizon RBC Select is expected to generate 2.51 times less return on investment than TD Canadian. But when comparing it to its historical volatility, RBC Select Balanced is 1.19 times less risky than TD Canadian. It trades about 0.09 of its potential returns per unit of risk. TD Canadian Index is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  4,172  in TD Canadian Index on October 26, 2024 and sell it today you would earn a total of  96.00  from holding TD Canadian Index or generate 2.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

RBC Select Balanced  vs.  TD Canadian Index

RBC Select Balanced

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RBC Select Balanced has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong basic indicators, RBC Select is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

TD Canadian Index

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TD Canadian Index are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat strong fundamental drivers, TD Canadian is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with RBC Select and TD Canadian

The main advantage of trading using opposite RBC Select and TD Canadian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RBC Select position performs unexpectedly, TD Canadian can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in TD Canadian will offset losses from the drop in TD Canadian's long position.

The idea behind RBC Select Balanced and TD Canadian Index pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.